Dollar Holds Firm as Strong U.S. Data Dims Fed Rate Cut Hopes

The U.S. dollar remained resilient on Friday, positioning itself for a third consecutive weekly gain as stronger-than-expected U.S. economic data reduced market expectations for near-term Federal Reserve rate cuts. The greenback strengthened after a surprise drop in weekly jobless claims, reinforcing confidence in the U.S. labor market and supporting the dollar’s upward momentum.

Overnight, the dollar advanced following data showing U.S. initial unemployment claims fell by 9,000 to 198,000 for the week ended January 10, significantly below economists’ forecasts of 215,000. This improvement, along with upbeat manufacturing indicators, has pushed Fed funds futures to delay expectations for the next interest rate cut until June. Investors now see less urgency for the Federal Reserve to ease monetary policy as inflation concerns remain.

The dollar index, which tracks the U.S. currency against a basket of major peers, hovered around 99.36 and was on track for a weekly gain of roughly 0.2%. The euro traded steadily near $1.1607, while the Japanese yen edged slightly stronger to 158.58 per dollar but was still set for a weekly decline. The yen remains under pressure amid speculation about possible currency market intervention by Japanese authorities and expectations that the Bank of Japan may not raise interest rates again until July.

Comments from Federal Reserve officials further supported the dollar. Chicago Fed President Austan Goolsbee emphasized the need to keep inflation in check, while Kansas City Fed President Jeff Schmid described inflation as still “too hot.” San Francisco Fed President Mary Daly added that recent U.S. economic data has been encouraging, reinforcing the case for patience on rate cuts.

In Europe, the European Central Bank signaled stability, with Chief Economist Philip Lane noting that rates are likely to remain unchanged unless new shocks emerge. The ECB has kept rates steady since ending its easing cycle in June.

Elsewhere, the Australian dollar traded near $0.6699, the New Zealand dollar rose modestly to $0.5745, and cryptocurrencies showed mild gains, with bitcoin near $95,760 and ether around $3,324.